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Technology Stocks : Excel Communications
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To: McNabb Brothers who wrote (2486)1/18/1998 4:58:00 PM
From: Flan  Read Replies (1) of 2806
 
McNabb I imagine you are still short, nice call - unfortunately I never shorted this dog becuase I do not short stocks but I think the way this company handles touchy accounting issues is hilarious.

John J. McLaine, President and Chief Operating Officer commented, ''Over the past several months, our
customer base has continued to grow at a rate faster than anticipated by most analysts. We changed our
accounting policy in the first quarter of 1997 to fully expense customer acquisition costs in the period
incurred, which results in higher marketing service expenses during a period of strong customer growth.
The Company also has underway a marketing promotion which will cause acquisition costs per customer
to increase by approximately 10% during the fourth quarter.''

The company has decided to fully expense its costs - Well isn't that a honorable thing thing to do. The company has decided to follow GAAP (Generally accepted accounting principles) Rather than ammortize the costs over a long period the company will expense them when incurred and as a result profitability will be hurt. Aggresive accounting always comes back to bite you in the ass. Tele save (TALK) recently did the same thing. They signed an agreement whereby they would pay AOL 50 million to have access to AOL customers. Even though the contract was for 3 years the company chose to amortize the costs over a forty year period. Management said that they felt comfortable doing so because they believed that the contract would be renegotiated for that many years. If they had expensed the costs of this contract for the actual length of the contract the company would have lost a substantial amount of money rather than post profitable figures. Well the SEC eventually stepped in and made them do it correctly but I think it is a joke that company's pull this crap and people just eat it up. ECI is just another case of this type of manipulation.
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